From The Law Offices of Brian A. Raphan, P.C.

Month: February 2014

Thanks to AgingCare.com & Lori Johnston for contributing these often forgotten tips:

Before filing your taxes, don’t miss out on deductions related to medical expenses and other costs that come out of your wallet as you care for a family member throughout the year.

An estimated one-third of U.S. taxpayers, or about 45 million people, itemize their taxes instead of taking IRS’ standard deduction. An estimated $1.26 trillion worth of deductions are claimed annually, according to experts with TurboTax.

See if you can get a break on your taxes, with these 10 tax deductions.

1. Medical expenses

Nearly 100 medical costs can be deducted, related to the diagnosis, treatment, cure or prevention of disease or costs for treating any part of the body. Those include equipment, services and supplies, ranging from glasses to eye surgery to acupuncture to prescriptions.

“Lots of adults are paying for prescriptions for their elderly parents,” says Melissa Labant, a CPA and technical manager for the American Institute of CPAs.

Even artificial limbs, bandages, hearing aids and wigs are accepted medical expenses (for others, see IRS’ Publication 502). The medical and dental costs must total more than 7.5 percent of your adjusted gross income to be deducted.

2. Long-term health care costs

An often-missed expense is the amount paid for long-term care services and long-term care insurance (that’s a more limited deduction, depending on age). Rehabilitation, therapeutic, preventative and personal care services are among those that qualify as long-term care services, if your family member is chronically ill and if it’s part of a plan set by a health care practitioner.

Someone is considered chronically ill if they can’t perform at least two activities of daily living (such as eating, toileting, bathing and dressing) without substantial assistance from someone else.

3. Mileage

From weekly doctor’s appointments to out-of-town visits with a specialist or for a procedure, the miles you log for your parents’ medical needs can be deducted.

“You can take that if they qualify as your dependent. Keep a log as you’re running around,” says Mary Beth Saylor, a CPA and tax principal with Windham Brannon, an Atlanta-based accounting firm. “I’ve hardly seen anybody really keep up with that.” You can take approximately 19 cents a mile for 2012, for medical mileage.If you’re staying overnight for a medical purpose, deduct $50 per night, for each person, for lodging.

4. Dental expenses

Go ahead and smile – dental expenses are among the costs that some people ignore, including dentures and artificial teeth.

5. Home improvements for aging adults

Investing in ramps for a wheelchair-bound parent, handrails and grab bars in the bathroom or a stepless shower can be part of a deduction. It doesn’t matter if the improvements are in your home or your parents’ home, as long as it doesn’t add value to the house, Saylor says.

The IRS says that the cost of the improvement is reduced by the increase in your property value. Other changes, such as widening doorways and hallways, lowering kitchen cabinets and installing lifts, also typically do not add value to houses.

6. Energy-saving home improvements

Whether or not you did this in the course of being a caregiver, any energy-saving changes are eligible for a credit. For more traditional items such as insulation and windows, it’s 10 percent of the cost (a maximum of $500). For alternative energy equipment, like a solar hot water heater, the credit is up to 30 percent of the cost. Find more details from the federal EnergyStar program.(www.energystar.gov)

7. Mortgage interest

If you are paying interest on your or your parents’ home loans, construction loans or home equity lines of credit, it’s deductible. There are some limitations, though, so you need to discuss with your accountant.

8. State and local sales tax

This is an excellent idea if you live in a state that doesn’t have income tax. If you do, you’ll need to make a choice: Deduct state and local sales taxes, or state and local income taxes. You may find that the best financial benefit, in that case, is to stick with the income tax deduction, according to experts with TurboTax. Take some time to figure out your best option by using the IRS sales tax calculator.

9. Estate tax on an inherited IRA

This is not as easy as deducting medical expenses or charitable contributions, but is worth checking out. If you inherited an IRA from your parents, you could take an deduction for the federal estate tax paid on IRA income.

10. Charitable contributions

Of course, you may know to estimate the value of items you or your parents donate to charity. But you also can include other out-of-pocket costs related to volunteering. If you or your parents bought ingredients to make meals for the homeless or elderly, or if you drove a personal vehicle while volunteering or assisting a charity, those and other costs can be deducted.

There’s the emotional aspect of getting a loved one’s home ready for sale — which likely includes clearing out his or her belongings and depersonalizing the rooms. There’s the financial cost of making necessary updates to attract buyers. Sometimes heirs have to deal with costly liens or other hidden problems, and there may be disagreements among siblings about the sale price.

And understandably, sometimes family members drag their feet. Images of growing up in the home with Mom and Dad prevent them from springing into action. They can’t let go.

“Everyone takes their time to deal with the passing of a loved one. And you need to take the appropriate steps to learn the market, educate yourself and have a Realtor and tax attorney who are reliable — you need someone who is going to be empathic and is there to help,” said Leslie Piper, consumer housing specialist for Realtor.com and a San Francisco real-estate agent.

Get some advice

First, learn about the house’s status and verify your ownership, getting the advice of an estate attorney, said David Fairman, a real-estate agent with ERA Solutions Realty in Central Ohio.

“Depending on state law, and other factors, a License To Sell Real Estate may be required from the Probate Court,” said Sally H. Mulhern, an attorney and founder of the law firm of Mulhern & Scott, PLLC, in Portsmouth, N.H., in an email interview. “In addition, there will most likely be a ‘creditor claims’ period, which must pass before assets, including real estate, can be distributed to the heirs.”

Connect with a tax adviser to understand any tax implications of selling the home, Fairman added. Heirs should also check and see if there are any liens on the property.

In fact, in certain situations — including when there are environmental concerns or the mortgage is underwater (meaning the home is worth less than what is still owed by the borrower) — heirs may even choose not to accept the home at all, allowing it to go into foreclosure, said Kelly Zinser, a bankruptcy attorney in California and legal analyst for Avvo.com, a site that rates lawyers and connects them with consumers.

Those who don’t want the property should speak with an attorney about disclaiming it — and promptly, Mulhern said. The process will likely involve filing disclaimer paperwork, she said.

Assess the market

It might be clear that Grandma’s kitchen needs some major upgrading. But before doing any work, contact a real-estate agent to help you understand the local housing market.

“You have to figure out what the other houses on the street are selling for, and get an idea of what the house is worth before improvements are made,” Fairman said.

A real-estate agent can also provide some advice on what changes would be worthwhile to make. From a financial perspective, it’s often best to do the minimum amount of repairs required to secure a buyer — and allow them to get financing. (Federal Housing Administration-backed mortgages, for example, require certain safety, soundness and security requirements for homes.)

If the home is in very poor shape, it’s sometimes best to market it to an investor, Fairman added. Cash buyers looking for bargains are more likely to purchase a home “as is.”

In areas with a hot rental market, it may make sense to keep the property and rent it out. A local real-estate agent can help people sort through the options.

Prepare for listing

Success in selling the home — and for a desirable price — will often depend on its condition, and cleaning up the yard, painting the home’s interior and other minimal improvements will go a long way, Piper said. Upgrading flooring can also be helpful, as can minor improvements to the kitchen and baths, Fairman said.

Removing your loved one’s belongings will also make the home more appealing to the masses, both the ones who view photos online as well as those who do a walk through, Piper said. See Decluttering tips for boomers.

“Doing the cleanup is essential,” Piper said. It helps people view the home as a blank canvas.

If a home’s major mechanical systems are old, sellers might want to pay for a home warranty instead of replacing them, Fairman said. Buyers typically react positively to that incentive, he said.

Expect an emotional process

The process of selling a relative’s home is likely going to be emotional, from the sorting of the personal belongings to the finalization of the sale at the closing table. Expect that. And surround yourself with professionals who will be empathetic and helpful, Piper said.

Also, it will help to set expectations on what price you’d be willing to accept at the beginning of the process, Fairman said. That way, you can more rationally evaluate buyer offers, minimizing the chance of getting emotional over lower-priced bids. Clearly established expectations are especially important when multiple heirs are selling the home.

Absolutely. Sometimes Medicare will decide that a particular treatment or service is not covered and will deny a beneficiary’s claim. Many of these decisions are highly subjective and involve determining, for example, what is “medically and reasonably necessary” or what constitutes “custodial care.” If a beneficiary disagrees with a decision, there are reconsideration and appeals procedures within the Medicare program.

While the federal government makes the rules about Medicare, the day-to-day administration and operation of the Medicare program are handled by private insurance companies that have contracted with the government. In the case of Medicare Part A, these insurers are called “intermediaries,” and in the case of Medicare Part B they are referred to as “carriers.” In addition, the government contracts with committees of physicians — quality improvement organizations (QIOs) — to decide the appropriateness of care received by most Medicare beneficiaries who are inpatients in hospitals.

If an intermediary, carrier or QIO decides Medicare shouldn’t pay for care you received, you will learn this when you receive your Medicare Summary Notice (MSN). The Medicare Rights Center recommends first making sure that the coverage denial isn’t simply the result of a coding mistake. You can ask your doctor to confirm that the correct medical code as used. If the denial is not the result of a coding error, you can appeal the denial using Medicare’s review process. Click here for details on this process.

Once Medicare’s review process has been exhausted, the matter can be taken to court if the amount of money in dispute exceeds either $1,000 or $2,000, depending on the type of claim. Medicare beneficiaries can represent themselves during these appeal proceedings, or they can be represented by a personal representative or an attorney. The Medicare Rights Center estimates that only about 2 percent of Medicare beneficiaries appeal denials of care, but 80 percent of those who appeal Part A denials and 92 percent who appeal Part B denials win more care.

Even if Medicare ultimately rejects a disputed claim, a beneficiary may not necessarily have to pay for the care he or she received. If a recipient did not know or could not have been expected to know that Medicare coverage would be denied for certain services, the recipient is granted a “waiver of liability” and the health care provider is the one who suffers the economic loss. In cases where this limited waiver of liability does not apply, however, the beneficiary is liable for any costs of care that Medicare does not cover. For example, a patient is financially responsible for any services normally provided under Medicare Part B if provided by a nonparticipating provider who did not “accept assignment” of the claim.

From the IRS: Tips for Seniors in Preparing their Taxes:

Current research indicates that individuals are likely to make errors when preparing their tax returns. The following tax tips were developed to help you avoid some of the common errors dealing with the standard deduction for seniors, the taxable amount of Social Security benefits, and the Credit for the Elderly and Disabled. In addition, you’ll find links below to helpful publications as well as information on how to obtain free tax assistance.

Standard Deduction for Seniors – If you do not itemize your deductions, you can get a higherstandard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind. (See Form 1040 and Form 1040A instructions.)

Taxable Amount of Social Security Benefits -When preparing your return, be especially careful when you calculate the taxable amount of your Social Security. Use the Social Security benefits worksheet found in the instructions for IRS Form 1040 and Form 1040A, and then double-check it before you fill out your tax return. See Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

Credit for the Elderly or Disabled – You must file using Form 1040 or Form 1040A to receive the Credit for the Elderly or Disabled. You cannot get the Credit for the Elderly or Disabled if you file using Form 1040EZ. Be sure to apply for the Credit if you qualify; please read below for details.

Who Can Take the Credit: The Credit is based on your age, filing status and income. You may be able to take the Credit if:

Age: You and/or your spouse are either 65 years or older;or under age 65 years old and are permanently and totally disabled.

AND

Filing Status: Your income on Form 1040 line 38 is less than $17,500, $20,000 (married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).

And, the non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is less than $5,000 (single, head of household, or qualifying widow/er with diependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).

Calculating the Credit: Use Schedule R (Form 1040 or 1040A), Credit for the Elderly or Disabled, to figure the amount of the credit. See the instructions for Schedule R (Forms 1040 or 1040A) if you want the IRS to figure this credit for you.

Also see Publications 524 (Credit for the Elderly or Disabled); and 554 (Tax Guide for Seniors).

Free IRS Tax Return Preparation – IRS-sponsored volunteer tax assistance programs offer free tax help to seniors and to low- to moderate-income people who cannot prepare their own tax returns.